Abstract
The paper extends the Krugman (J Polit Econ 99:483–499, 1991) new geography model to include asymmetries in regional labor markets. The particular labor market considered is a two-region variant of the Shapiro and Stiglitz (Am Econ Rev 74:433–444, 1984) model where the rate of job breakup or shirker detection may vary between regions. It is shown that in the presence of such asymmetries agglomeration may occur in the region that initially has the smaller population. The paper also examines the spatial pattern of unemployment in the case of both symmetric and asymmetric labor markets. It is shown that, in either case, aggregate unemployment is decreasing in regional agglomeration.
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The author would like to give special thanks to Steven Matusz for his insightful comments and suggestions in preparing this manuscript.